This is the eye of the economic hurricane. Right now. Today, this minute. The debate necessarily focuses on how long it lasts and what can quickly, efficiently ease the pain and ultimately return the economy to a growth mode. Meantime, we’re knee-deep in the grip of recession—recession with a capital R. This is what a severe downturn looks and feels like.
This morning’s grim employment report for December provides the latest installment of the ugly details. Indeed, the jobless rate popped up to 7.2% last month from 6.8% and is likely to climb further before all is said and done. Meanwhile, nonfarm payrolls shrunk again by more than 500,000 for the second month running, as our chart below shows.

With the December numbers in, that makes for a perfect record in 2008: Every month last year was a losing proposition for jobs, with the trend getting worse as 2008 unfolded. So far in this cycle, nearly 2.6 million nonfarm jobs have been lost to the recession, which NBER says began in December 2007.

That pegs the current recession at 13 months, or within shouting distance of the 16-month downturns of 1973-75 and 1981-82, the longest NBER-defined contractions since the Great Depression. It’s likely that we’ll beat the 16-month mark easily this time, short of a miraculous turnaround before April. Don’t hold your breath. The breadth and depth of the job loss is in high gear and the process must play out in the coming months. Indeed, the 524,000 jobs that evaporated last month came about equally from the goods-producing and services sectors. In short, the labor ills are infecting every corner of the economy, including the world of services, which is responsible for the lion’s share of U.S. unemployment.
At some point, the seeds of an eventual turnaround—or at least stabilization—will presumably show up in the all-important category of consumer spending. Alas, the pain there has only recently begun and so we must pace ourselves in expectation of even middling news on that front. The latest readings for spending in the holiday season just past sends a clear message: Joe Sixpack and his friends are shutting their wallets—tight. “Consumers have clammed up,” Ken Mayland of ClearView Economics explains to Bloomberg News. “The reduction in consumer credit doesn’t stop here, and will spill over into 2009. Households are bolstering their balance sheets.”
Another blunt assessment comes from Retail Metrics’ Ken Perkins, who wrote in a note to clients (via CNNMoney): “Consumers are clearly feeling significant levels of pain and curtailing consumption accordingly.”

The priority then is 1) stop the bleeding; 2) help the patient get on his feet again. That’s not going to be easy for a number of reasons, starting with the fact that consumers now recognize that they’ve overspent for too long. In the pervious recession, consumer spending barely blinked, despite the carnage ripping through the corporate world, particularly in tech. But that was due to more than a little diversion engineered by the Fed. The central bank under Mr. Greenspan spared no expense in 2000-2002 in wielding the monetary levers to lull Joe Sixpack back to the mall. The mantra of Don’t Worry, Just Spend worked then, but it won’t now.
Yes, Fed Chairman Ben Bernanke tried to pull a Greenspan out of his monetary hat in an effort to replay past fortunes. But with interest rates mind-numbingly low and consumers unwilling to take the bait, the last, best hope shifts to the fiscal front and the U.S. Congress.
President-elect Obama is now in full swing with speeches laying the groundwork for a massive new government stimulus plan. Undoubtedly something of the sort will arrive soon. But getting from here to there will be messy. The political bickering over new spending ideas has already started, even within Obama’s own party, and so there’s reason to wonder what exactly will emerge from Congress, and when.
That leaves watching and waiting for signs that maybe, just maybe, the storm will ease. At this point, a mild recession would be a huge improvement over what’s currently blowing through the U.S. With all the previous government stimulus efforts coursing through the system, and the promise of more coming, there’s reason to hope that later this year there will be signs of a bottom in the recession. Even then, a quick and robust turnaround won’t be imminent.
We must walk before we run, but given the current conditions we should be happy with merely crawling.